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According to the expectations theory of the term structure ____.
A) when the yield curve is steeply upward sloping, short-term interest rates are expected to
remain relatively stable in the future
B) when the yield curve is downward sloping, short-term interest rates are expected to remain
relatively stable in the future
C) investors have strong preferences for short-term relative to long-term bonds, explaining why
yield curves typically slope upward
D) yield curves should be equally likely to slope downward as slope upward
Answer: D
Diff: 3 Type: MC Page Ref: 123
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
According to the segmented markets theory of the term structure ____.
A) bonds of one maturity are close substitutes for bonds of other maturities, therefore, interest
rates on bonds of different maturities move together over time
B) the interest rate for each maturity bond is determined by supply and demand for that maturity
bond
C) investors' strong preferences for short-term relative to long-term bonds explains why yield
curves typically slope downward
D) because of the positive term premium, the yield curve will not be observed to be downward-
sloping
Answer: B
Diff: 2 Type: MC Page Ref: 123
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
According to the segmented markets theory of the term structure ____.
A) the interest rate on long-term bonds will equal an average of short-term interest rates that
people expect to occur over the life of the long-term bonds
B) buyers of bonds do not prefer bonds of one maturity over another
C) interest rates on bonds of different maturities do not move together over time
D) buyers require an additional incentive to hold long-term bonds
Answer: C
Diff: 3 Type: MC Page Ref: 123 - 124
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related